The role of the debt adviser
Initiating a breathing space moratorium is not a self-help option for a client. The regulations provide for the client to make an application to a debt advice provider who has provided her/him with advice either face-to-face, over the telephone or by electronic means. ‘Advice’ is defined as: ‘advice as to the suitability, conditions and consequences of a breathing space moratorium for the debtor’.1Reg 23(7) DRS Regs. See also CONC 8.3.2(1)(c) and CONC 8.3.7(2)(a) Para 4.3 of the Insolvency Service’s guidance to money advisers provides:
Before you start a standard breathing space you must obtain enough information to understand your client’s financial situation. This is so you can advise them on whether they are suitable for a breathing space and any consequences of being in one. However, it is not necessary to complete the full debt advice process with your client before you consider a breathing space. You also do not need to complete a full Standard Financial Statement at this stage.
Clearly, where the purpose of the breathing space moratorium is to enable you to advise the client on her/his options, then full advice will not have been given and nor may an SFS have been drawn up at this stage. However, where the purpose of the breathing space moratorium is to enable a debt solution to be put in place, then the expectation is that full advice will have been given, including drawing up an SFS. Given that, when advising on the appropriateness of a breathing space moratorium, you willl need to consider whether or not the client is able to repay some or all of her/his debts as they fall due, then some assessment of the client’s financial situation would seem to be required.
The guidance states that clients should be advised on the impact of a moratorium on their credit reference file, namely that, where payments are not being made, this will continue to be recorded.
You will need to obtain from the client:
•her/his full name, date of birth and usual residential address;
•the trading name or names and address of any business carried on by the client; and
•details of all the debts s/he owes and contact details of her/his creditors and of any agents, including bailiffs, acting on their behalf so far as these are know to the client.
As the client is only protected from recovery action by her/his creditors in respect of debts of which the details have been provided to the Insolvency Service, included on the Breathing Space Register and of which the creditor has been notified, you should consider whether it would be appropriate to obtain copies of your client’s credit reference reports.
Initiating a breathing space moratorium
You initiate a breathing space moratorium electronically via the money adviser portal provided by the Insolvency Service. Your organisation rather than you as an individual debt adviser will be registered as the user, which means that colleagues will also have access to the portal and, therefore, to clients’ records. In addition to the client’s personal details, you must include:
•details of the client’s debts, each individual debt being recorded separately rather than as a total to a particular creditor;2This is particularly relevant to debts owed to - eg, HMRC, DWP, councils and debt purchasers. See also para 5.1, Guidance for Money Advisers, Insolvency Service •contact details of her/his creditors;3The Insolvency Service has pointed out that the County Court Business Centre should not be scheduled as a creditor as it does not have the facilities to forward notifications. and •contact details of any known agent of the creditor, such as debt collectors or bailiffs.
The Insolvency Service will then add all this information to the Breathing Space Register and send notifications to your client’s creditors and any agents whose details have been provided. The moratorium starts the day after the client’s details are put onto the register and at that point the client’s qualifying debts become moratorium debts. The register includes the client’s full name, date of birth, usual residential address and the date the moratorium started and ended (or was cancelled). Only you, the client and the client’s creditors (but not agents) can access the information held on the register, and creditors can only access details of their own debts but not of those owed to any other creditor.
Corresponding to the electronic money adviser portal is an electronic creditor portal where creditors can not only view their notifications but also notify you of any additional debts, any debts sold on or request a review (see here). As soon as possible after receiving notification of the start of a breathing space moratorium, creditors must search their records not only to identify the debt notified to them but must also take steps to identify any additional debt(s) owed by the client that were not detailed in the notification they received from the Insolvency Service. Creditors must then:
•inform you of any additional debt(s) they have found;
•if a moratorium debt or any additional debt have been assigned to another creditor, provide you with contact details of that other creditor; and
•inform a creditor to whom a moratorium debt or additional debt has been assigned about the start of the moratorium.
As well as receiving information from creditors about additional debts and other creditors to whom debts have been assigned, you may also receive information about other debts that were not included in the moratorium – eg, from information provided by the client her/himself or her/his credit reference report. You must then add these debts to your client’s record through the money adviser portal so that they become moratorium debts.4It is not clear whether a contingent liability that existed before the start of the moratorium which becomes liquidated during the moratorium falls within the definition of ‘additional debt’ or whether an ‘additional debt’ must have been owing before the start of the moratorium: see Axnoller Events Ltd v Brakes [2021] EWHC 1500 (Ch) and Shelter Specialist Debt Advice Service e-bulletin, June 2021 If 45 or more days have passed since the start of the moratorium, you may choose not to add a debt to the client’s record if you do not consider it appropriate for the moratorium to apply to that debt, taking into account how much of that moratorium remains. If a creditor provides you with details of a debt that has been assigned to another creditor, you must amend the creditor details on your client’s record but not create a record of a new debt. Note: Debts incurred during the breathing space moratorium cannot be included as ‘additional debts’ and neither can further arrears of debts included when the breathing space was initiated.5See paras 4.10 and 4.11 of the Guidance for money advisers and paras 2.6.and 2.7 of the Guidance for creditors at . See also Axnoller Events Ltd v Brake & Another No.2 [2021] EWHC 2308 (Ch) at paras 56 - 61Should the client’s death occur during the moratorium, the moratorium will end the following day and you must update the client’s record, using the money adviser portal as soon as reasonably practicable on becoming aware of this so that the Insolvency Service can update the register and notify creditors of the end of the moratorium.
Should you become aware that any information you have provided the Insolvency Service through the money adviser portal contains a mistake or inaccuracy, you are required to update your client’s record accordingly.
Non-disclosure of client’s address
The information provided to the Insolvency Service as part of initiating the breathing space moratorium includes details of the client’s usual residential address. This information is available to creditors on the Breathing Space Register. The client can ask you that this address is not disclosed on the ground that disclosure ‘might reasonably be expected to lead to violence against the debtor or against a person who normally resides with the debtor as a member of the debtor’s family’.6Reg 38 DRS Regs The regulation requires the client to explain why her/his address should not be disclosed (which, if not provided in writing, should be fully case recorded) and provide evidence in support (presumably, if that is available). As part of your advice to your client on this issue, you should explain that the Breathing Space Register is not published and nor is it available to members of the public.7Reg 35(4) and (5) DRS Regs. See also para 4.12, Guidance for Money Advisers, Insolvency Service You are required to consider all requests for non-disclosure and notify the client of your decision within seven days. If you decide that disclosure of the client’s address is appropriate, you must still provide details of the client’s address when initiating the moratorium but there is an option within the money adviser portal to instruct the Insolvency Service not to disclose this address to creditors. Creditors will not be informed of the client’s address nor will it be available on the register itself.
Should your decision be that the client has not sufficiently demonstrated that the grounds for non-disclosure have been made out, the client can appeal that decision to the county court within 28 days of being notified of the decision. The client must make an application on notice in From N244E to the debt advice provider. The court fee is £5.8Para 2.3 PD 70B CPR. Art 2 Civil Proceedings (Fees) (Amendment) Order 2021 It would be advisable to inform the client of your decision in writing, including your reason(s), which should be more detailed if the decision is to refuse the client’s request.
Note: this process could impact on the start of the breathing space moratorium as you would not be able to initiate this until the earliest of:
•the date of your decision the address should not be disclosed; or
•28 days from the date of your decision not to withhold the address with no appeal to the court; or
•the determination of any appeal regarding your decision.
Creditor request for review
Although referred to as a ‘review’, this essentially involves a creditor objecting to the breathing space moratorium in respect of some or all of the debts notified to them by the Insolvency Service. The creditor must request a review within 20 days of the start of the moratorium or, if the creditor has been added subsequently, within 20 days of the moratorium applying them. The review must be requested in writing stating the reason(s) for the review and provide any supporting evidence. The grounds upon which a review can be requested are:
•the moratorium unfairly prejudices the interests of the creditor; or
•there has been some ‘material irregularity’.
The regulations specify the meaning of ‘material irregularity’ as follows:
•the client did not meet the eligibility criteria (see here); or •a moratorium debt is not a qualifying debt (see here); or •the client has sufficient funds to pay her/his debts as they fall due.9Reg 17 DRS Regs
If you consider that the creditor has demonstrated unfair prejudice to their interests or that there has been a material irregularity, you must cancel the moratorium in whole or in part unless you consider that the client’s personal circumstances would make the cancellation unfair or unreasonable. Neither the regulations nor the Insolvency Service’s guidance to money advisers provide any advice on how to exercise this discretion. Having come to your decision, you must then notify the creditor of the outcome of your review and, if your decision is to uphold the review request and cancel the moratorium in whole or in part, you must also consult with the client (to the extent that it is possible to do so –ie, that s/he is prepared to co-operate). If your decision is to refuse the creditor’s review request, it would be advisable to provide full reasons for that decision in your response. Equally, if your decision is to cancel the moratorium in whole or in part, you should not only convey this to the client in writing but also provide full reasons.
You must carry out these steps within 35 days of the moratorium starting or, in the case of additional creditors, 35 days of the moratorium applying to them.
If your decision remains that the moratorium should be cancelled in whole or in part you must update the client’s record appropriately through the money adviser portal.10Reg 18 DRS Regs If the creditor is dissatisfied with your decision, they may apply to the county court for a review that is essentially an appeal. The client has no corresponding right but would, of course, have the right to make a complaint. This application must be made within 50 days of the start of the moratorium or, in the case of additional creditors, within 50 days of the moratorium applying to them. The creditor must apply on notice in Form N244D to the debt adviser and also to the client.11Para 2.2 PD 70B CPR In the first reported decision on an application to cancel a moratorium (Axnoller Events Ltd v Brake & another [2021] EWHC 2308 (Ch)), the judge declined to lay down any firm guidelines for the future on how to apply the phrase ‘unfairly prejudices’. He did, however, accept that: ‘…unfairness is to be assessed objectively and that this will require the court to embark upon a balancing exercise. I further accept that, where the moratorium discriminates unfairly between creditors, so that the impact on one is significantly more severe than on another, that may well be a proper basis on which the court can say that the moratorium ‘unfairly prejudices’ the applicant creditor. But I also accept that the phrase ‘unfairly prejudices’ should not be confined to that. These are ordinary English words, undefined in the legislation and not obviously terms of art. They can properly be understood to go wider’ (para 31).
Adviser’s midway review
Between days 25 and 35 of a standard breathing space moratorium, you must carry out a review in order to determine whether it should continue or be cancelled in whole or in part. This review can be combined with a creditor’s request for a review when appropriate. When conducting a review, you need to consider the following, namely whether:
•the client is complying with her/his obligations – eg, paying her/his ongoing liabilities or engaging appropriately with you; or
•the client has entered into a debt solution.
If you decide the moratorium should continue, then nothing further is required to be done. However, if your decision is that the client is not complying with her/his obligations or a debt solution has been entered into, then you need to consider whether the moratorium should continue or be cancelled and, if cancelled, whether this should be in whole or in part. On this occasion, the regulations do provide some assistance in coming to your decision:
•if the client has not engaged with you appropriately, you must take into account the reason(s);
•you are not required to cancel a moratorium if the client’s personal circumstances would make the cancellation unfair or unreasonable (there is no guidance on exercising this discretion);
•if the client has not paid her/his ongoing liabilities, you do not need to cancel the moratorium if the client does not have the financial means to pay them.
If your decision is to cancel the moratorium, then you must consult the client about this (to the extent this is possible – ie, that s/he is prepared to co-operate). If your decision is still to cancel the moratorium, you must update the client’s record using the money adviser portal.12Reg 27 DRS Regs You should convey your decision to the client, including full reasons. The client has no right of appeal to, or review by, the court, but again could make a complaint. The Insolvency Service will notify the relevant creditors of the cancellation and the moratorium will cease to apply to them.
If your client enters into a debt solution either before the midway review point or after you have carried out the midway review and decided the moratorium should continue, there is nothing in the legislation to prevent you from cancelling the moratorium immediately on the basis that the breathing space has fulfilled its purpose and is no longer appropriate - eg, if your client’s DRO application has been approved (subject, of course to it not being ‘unfair or unreasonable’ to do so). In the case of a DMP, the client has not ‘entered into’ the debt solution until all the creditors who are to be involved have agreed to the plan. Once the decision to cancel the moratorium has been made, you must update the client’s record accordingly as above so that the Insolvency Service can notify affected creditors accordingly.
Creditor non-compliance
If creditors do not comply with their obligations in relation to the client under the breathing space scheme, the first step is to point out what those obligations are, how they are not complying with them, that any action(s) taken in breach of those obligations is null and void and requesting that they will comply with them for the remainder of the moratorium. If their non-compliance has been triggered by a request for a review that was not successful, then their remedy was to apply to the court rather than ignore their obligations under the scheme.
If the non-compliance continues, you should consider using the money adviser portal to generate a non-compliance letter in the name of the Insolvency Service which will then be automatically sent to the creditor to remind them of their obligations and request their compliance.
Finally, you should consider making a formal complaint to the creditor which can be escalated to the relevant Ombudsman, if necessary.